Federal Reserve

After the financial crisis, the most dominant economic story has been the Federal Reserve and its unconventional monetary stimulus, Quantitative Easing or QE.

Some say QE is just a swap or that commercial banks are exchanging one government asset treasury for another central bank reserve.
Maybe at the start, but the program has morphed. Now, the Federal Reserve is buying mortgage-backed bonds, government bonds, and corporate bonds from pension funds, mutual funds, hedge funds, etc. The seller receives a bank deposit, and reserves provided by the central bank offset the commercial bank’s liability.

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Understanding the Risk of Quantitative Tightening (QT)

The Risk of Quantitative Tightening

This past December, after a 7% year-over-year inflation increase, Federal Reserve Chairman Jerome Powell reversed course. He declared that inflation was not transitory and laid out his plan for how the Fed would start fighting it.

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Is Quantitative Easing (Q.E.) Stimulative

Is QE 4 Stimulative?

There is no way to know for sure. Still, when the Fed adds money to the economy by buying bonds from non-banks, the stock market seems to go up. When they subtracted cash from the economy by not reinvesting mortgage payments (quantitative tightening), it went down.

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The Risks of Quantitative Tightening

The Risks of Quantitative Tightening

Quantitative tightening (QT) is similar to what would happen if somebody who was paying your bills suddenly stopped doing so and started to reduce your bank account by the total amount of bills previously paid.

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